Canada’s economy blows away forecasts, but many economists are calling it a ‘fake beat’
OTTAWA — The Canadian economy outperformed expectations in the final three months of 2016 by generating growth at an annual rate of 2.6 per cent.
Statistics Canada’s latest report on real gross domestic product says the biggest contribution to the fourth-quarter increase came from household consumption, which rose at an annual rate of 2.6 per cent.
The agency says economic growth was limited by an 8.2 per cent decline in business investment, which was the category’s ninth consecutive quarterly contraction.
The headline GDP figure also received a boost from a sharp quarterly drop in imports, which fell at an annual rate of 13.5 per cent. Statistics Canada said some of that decline was due to the one-time, third-quarter import of a large module for the Hebron offshore oil project.
The details of today’s release — particularly regarding trade — were messy
Economists had been expecting growth of two per cent, but beyond the blockbuster headline, many were not impressed with the details.
Derek Holt of Scotiabank called the data a ‘fake beat’ saying the economy is nowhere near as strong as the headline suggests. “In fact, it was quite weak in Q4.”
“While top line growth is hanging in quite nicely and Canada’s economy appeared to grow at a faster pace in 2016H2 than the US economy did, much of the Q4 gain was illusory because of the import distortion and underlying final domestic demand signalled weakness particularly on the business investment side of the picture,” Holt wrote in his morning note.
The Canadian dollar rose after the data was released, but then declined to 74.74 U.S. cents. The weaker trade was more appropriate, Holt said, “with a solid case for pushing it weaker yet.”
Economists at CIBC and Citi said there was nothing in today’s GDP data to change the Bank of Canada’s cautious stance.
“The details of today’s release — particularly regarding trade — were messy, and a few soft spots tied to domestic demand will give reason for the Bank of Canada to remain cautious,” wrote Nick Exarhos of CIBC.
Overall, the economy expanded by 1.4 per cent in 2016 — compared to with 0.9 per cent growth in 2015.
